Miller Industries Inc (MLR) 2011 Q3 法說會逐字稿

Welcome to the Miller Industries' third-quarter 2011 results conference call. As a reminder, all participants will be in listen-only mode. (Operator Instructions) After today's presentation there will be an opportunity to ask questions. Please note this event is being recorded.

At this time I would like to turn the conference over to Eric Boyriven of FTI Consulting. Please go ahead.

Thank you and good morning. I would like to welcome you to the Miller Industries conference call. We're here to discuss the Company's 2011 third-quarter results, which were released after the close of market yesterday.

With us from management today are Bill Miller, Chairman of the Board; Jeff Badgley, CEO; Vince Mish, CFO; Frank Madonia, General Counsel; and Allison Houghton, Director of Finance. Today's call will begin with formal remarks from management, followed by a question-and-answer period.

Please note that in this morning's call management may make forward-looking statements in accordance with the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. I would like to call your attention to the risks related to these statements, which are more fully described in the Company's annual report on Form 10-K and other filings with the Securities and Exchange Commission.

With these formalities out of the way, I would like to turn the call over to Jeff Badgley. Jeff, please go ahead.

Thank you and good morning. Yesterday we reported 2011 third-quarter sales of $96.8 million, representing a year-over-year sales growth of over 31%. We are pleased with this strong growth, which reflects improving demand for our products across our core domestic and most European markets and deliveries from our government-related add-on orders.

Our gross margins improved year-over-year on the sales increase, which more than offset the ramp-up in our production costs to deliver on these government orders. Additionally, we were able to carefully control our costs and improve operational efficiencies, which further strengthened our margins and led to a 67% increase in net income.

During the quarter, we continued to see positive demand trends despite an uncertain economic environment. Our domestic business continued to generate an increase in order rates, and we are hopeful this trend will continue.

In Europe, we are gaining more business as sales improve somewhat compared to the year-ago period. While there are still pockets of weakness that remain hampered by tight credit and economic uncertainty, we still continue to look to gain additional market share in that region.

During the quarter, we began delivering against our 140-unit government-related add-on order. We expect to fulfill the rest of this order as well as our other government contract during the 2011 fourth quarter. Completing delivery on these orders is a testament to our ability to adjust our operations to meet customer deadlines, while maintaining the level of quality that has made us the market leader in manufacturing, towing, and recovery equipment.

In addition to building value for our customers, we continue to focus on ways to return additional value to our shareholders. In addition to paying a $0.12 per share quarterly cash dividend, we bought back approximately 731,000 shares during the quarter.

Now I'll turn the call over to Vince, who will review the quarter's financial results. After that I will be back with some more comments, and then we will open the line for questions. Vince?

Thanks, Jeff and good morning, everyone. As Jeff mentioned, net sales for the third quarter of 2011 were $96.8 million versus $73.7 million in the 2010 third-quarter. Sales were up approximately 31% year-over-year. Cost of operations increased by about 30% to $81.2 million in the 2011 third-quarter, compared to $62.3 million last year as we geared up to fulfill the 140-unit government-related order during the quarter.

Gross profit was $15.6 million or 16.1% of net sales in the third quarter of 2011 compared to $11.4 million or 15.5% of net sales in the third-quarter 2010. The increase in gross margin was driven by the higher sales levels and the sales mix in the quarter.

SG&A expense increased 15.0% over the prior year to $7.5 million. As a percentage of sales, SG&A decreased to 7.7% from 8.8% over the prior-year period.

Other income-related foreign currency transactions was a net gain of $9,000 in the third quarter of 2011 compared to a net loss of $37,000 in the third quarter of 2010. Interest expense in the 2011 third-quarter was $174,000 compared to interest expense of $60,000 in the third quarter of 2010, reflecting higher interest expense on chassis and distributor floorplan financing. Net income was $4.9 million, $0.41 per diluted share, compared to $2.9 million or $0.24 per diluted share for the 2010 third-quarter, an increase of 66.6%.

Now let me briefly review our results for the nine months ended September 30, 2011. Net sales were $303.3 million in 2011 compared to $227.2 million in the prior-year period. Gross profit was $53.8 million, 17.7% of sales in 2011, compared to $33.3 million or 14.6% of sales in 2010. For the first nine months of 2011 the Company reported net income of $18.1 million, $1.49 per share, compared to net income for the first nine months of 2010 of $8.1 million or $0.67 per diluted share.

Turning now to our balance sheet, we continued to operate from a position of financial strength. We had cash and cash equivalents at $35.7 million as of September 30, 2011, compared to $54.9 million as of June 30, 2011, and $46.3 million at December 31, 2010. The decline in cash was primarily attributable to the shares repurchased in the quarter, the ramp-up in production, and our quarterly dividend payment.

Accounts receivable at September 30, 2011, were $72.5 million compared to $67.2 million as of June 30, 2011, and $60.1 million at December 31, 2010. The increase in accounts receivable is primarily related to our government add-on orders.

Inventories were $55.1 million at September 30, 2011, compared to $50.1 million at June 30, 2011, and $38.9 million at December 31, 2010. The increase is primarily related to the production of our add-on government orders. Accounts payable at September 30, 2011, were $39.4 million compared to $38.4 million at June 30, 2011, and $34.0 million at December 31, 2010.

Now I'll turn the call back to you, Jeff, for further remarks.

Thanks, Vince. We are turned pleased with the year-over-year growth and our results for the third quarter. Against an uncertain economic environment, we are seeing improving demand trends across most of our markets. Commercial backlog levels are significantly higher than both year-ago levels and the levels at the end of 2010.

Looking ahead to the fourth quarter of 2011 and beyond, we believe we are well positioned to take advantage of improving demand trends in our markets. We are on track to complete the delivery of each of our government-related orders by the end of the fourth quarter of this year.

As we complete our US government-related orders in the 2011 fourth quarter, we do not expect to receive additional follow-on US government-related orders in the near term. Accordingly, we are increasing our commercial order production in order to meet our increased commercial demand.

In addition to our efforts in the US, we are actively working on government-related tenders in a number of countries around the world, supported by our differentiated product offering and recognized production capacity. For example, our French subsidiary Jige International has been selected by a prime contractor to provide the towing and recovery equipment under a recently awarded French military contract.

Initially we will deliver three test units in early 2012. Upon successful completion of these tests, we expect to receive an award for 50 units under the French military contract, which could increase up to a total of 150 units over a three-year period.

While we are excited about the prospect of these opportunities and what they present, the bid process by its nature can be very lengthy and uncertain. We remain cautiously optimistic regarding our longer-term outlook; however, broader economic visibility remains uncertain.

While we clearly see some positive trends in our core commercial customer base, the global economic environment remains uncertain and government spending is under intense scrutiny. As we have done successfully in past, we will carefully monitor these issues to ensure that we are prepared to adapt to any market conditions and will continue to work to maximize shareholder value.

In closing I would like to thank our employees, our shareholders, suppliers, and our customers for their ongoing support of Miller Industries. We believe we are well positioned with manufacturing and financial strength and experience to meet any challenges we may face. With that, we are ready to take your questions.

(Operator Instructions) David Cohen, Midwood Capital.

Hi, gentlemen. Good quarter. A couple questions. One is in regard to the government orders, can you give us just some sort of guidepost here as to how much is left on that add-on order and the remaining orders that weren't yet delivered?

So, do deliveries look like the past two -- in the fourth quarter likely to look like the past two quarters in magnitude? Or is it some -- it is higher? Is it lower?

Yes, David, we had said that this quarter coming up, fourth quarter, ought to look a lot like the fourth quarter with what we have got left.

Is that overall sales or is that the government sales?

Overall sales.

Okay. How would you characterize the gross margin on that government business compared to the Company average?

Well, as we said in the past, it is a sort of commercial off-the-shelf item, and the margins are very similar. But it does not have a chassis component, so the lower-margin chassis wouldn't be part of it.

Okay. I presume there is not much in the way of any sort of variable selling expense associated with that business?

Well, there's certainly commissions, and we do have some incentive programs, because our team really performed well and has performed well throughout these contracts. So we --

Okay, great. Just I guess last question, so if I -- using the footnote that you provide related to the large customer and back that out of your North American business, I come up with a year-to-date revenue for North American commercial -- again this is sort of backing into it -- about $175 million, which is about 17% higher than the prior year's nine months.

If that is in the right ballpark for growth, what is your sense of the sustainability of that type of growth rate?

Well, as I said earlier on the call, David, our backlog order intake rate is up significantly over the beginning of 2010 levels. Obviously, that makes us feel very good about the growth rate that could take place in 2012.

But you know, I temper that comment with what is going on in the world today. It seems as if, as we have said in the past, our customers are somewhat driven by the mood of the economy, and I don't know what effect European troubles will have on domestic demand. It's a very hard thing to read.

Your comment, Jeff, about backlog order intake being up significantly, is the same -- is that statement specific to North America, or does it incorporate Europe now?

Actually, we ran it both ways and it is both. Both US domestic demand is up and European demand is up over year-ago levels.

What is the sort of typical -- or I guess you had some delays because of you're devoting production to government. But your book-to-ship duration how -- what is that usually? So you have something in backlog; when is it likely to get out the door?

Historically, through this downturn, we tried to manage our leadtimes based on product type. So it varied across small wreckers, carriers, and large wreckers. When we looked at small wreckers we tried to keep in a range of about six weeks. When we looked at carriers we were six to seven; and large wreckers we were at about 10 weeks.

Okay.

But today, our leadtimes have extended out even though we did ship more commercial product in the preceding quarters. Our leadtimes have extended out where we are at nine to 10 weeks on small wreckers; nine to 10 weeks on carriers; and 13 to 14 weeks on large wreckers.

Okay, very good. Thanks, guys.

Rick D'Auteuil, Columbia Management.

Yes, I just had a couple. So if you are looking at utilization, I think you have already said Q4 is expected to be similar overall to Q3. Does that mean utilization is about even also, capacity utilization?

Yes, I would say if you are looking at revenue numbers that are similar quarter-to-quarter, that capacity utilization is equal to. I would say that as Vince said -- had discussed earlier with David's question, our military sales I believe third quarter to fourth quarter should be to somewhat comparable. So the answer to that question is yes.

Okay. So I don't know where -- you said you leadtimes are extended. So as the military business drops off, I would think there is the opportunity to pull in those leadtimes a little bit to more a normalized level.

Yes, and I should have -- I am sorry, Rick, I have already started kicking up production. That of course doesn't happen overnight. Just like overnight you don't see a switch from one government contract to immediately delivering 140 of another. You have some inefficiencies in that kick over.

But no; we have already set our production schedules at a significantly higher rate.

Okay, but does that extend into Q1 also?

At this point, it does.

Okay.

Certainly.

Okay. Any issues around -- with the, I guess, near-term visibility or near-term choppiness in the economy, are you hearing anything on the financing front that is concerning your ultimate customers?

You know, in the US, I would say no; I am not hearing anything. In Europe, I have heard tight credit in the UK and Germany. But I have not heard that around other markets in Europe.

Okay. On to the buyback, you said, if I heard this right, 731,000 shares repurchased.

I think it was -- yes, 731,000.

Okay. What was the average price?

Are we allowed to tell him that?

We can do the math. It's about $17, a little over $17.

Okay. Then what -- the share count. I realize the stock is higher so that maybe brings more shares in. But the share count is only down -- and I know this is on average weighted. What was the end of the quarter share count on a diluted basis?

Diluted basis was -- if I have got that. Yes, it is 11.6 million.

Okay. That is what I would have expected. Okay. And remind us what is still open on the buyback.

We spent something over (multiple speakers). Yes, it's approximately $5 million.

$5 million? Okay.

That we could use.

All right. That's all I have. I appreciate it. Thank you.

(Operator Instructions) This concludes our question-and-answer session. I would now like to turn the conference back over to management for any closing remarks.

Well, again, I would like to thank everybody for their support of Miller Industries, and we look forward to talking to you about our fourth-quarter results next year. Thank you very much.

This concludes today's event. Thank you for attending the presentation. You may now disconnect.